How A Scientist Can Retire During This Economic Downturn

Submitted by: Stacy Jones

How a Scientist Can Retire During This Economic Downturn

Many scientists who are approaching retirement age do not have enough money to comfortably retire. Part of the reason has to do with the many years that they devote to graduate school and postdoctoral work, when the chances of being offered a 401(k) or other retirement plan are low. In fact, over half of postdoctoral scientists either do not have access to a work-sponsored retirement plan or do not even know if such a plan exists for them (Reed & Garnett, 2007).

Another reason why scientists have less retirement cash than other advanced degree holders is because scientists are paid significantly less than their equally educated colleagues. According to Jupiter Scientific (2005), a biologist with 4-6 years of experience earns a median salary of almost $61,000 per year; by comparison, a physician earns over $146,000 per year, a lawyer earns almost $140,000 per year, and a pharmacist earns over $88,000 per year. Many employers match a percentage of a worker’s salary deferred retirement account contributions; if less money is earned overall, then fewer retirement-designated dollars will be matched by the employer.

Currently, scientists who are reaching retirement age have another issue at hand: The recent economic downturn has drastically reduced their already meager retirement savings to an even smaller sum. A recession usually leads to a decrease in company stock prices. Because many retirement portfolios are stock-based, this means that a recession often decreases portfolio value or causes it to stagnate. Since the Consumer Price Index rises at least 2% each year (Bureau of Labor Statistics, 2011), a retirement portfolio that is not appreciating by at least 2% each year is actually losing money to inflation.

By most estimates, retired individuals require up to 80%-90% of their current work earnings in order to live comfortably (MetLife, 2009). Furthermore, those who retire at age 65 could be facing 20 or more years of actual retirement time. What can scientists do to ensure that their current retirement savings are sufficient to withstand the next 20 (or more) years? Here are three basic steps for making sure that retirement is even possible in these tough economic times:

1. Calculate living expenses. To begin with, it is imperative that scientists calculate how much they are currently spending on necessities such as food, utilities, health insurance and rent/mortgage. Deductions can be made for work-related expenses such as gas, lunches/dinners out and business clothes. Likewise, the cost of living may be reduced if one plans to move to a rural environment or has children who will soon become financially independent.

2. Total all 401(k), IRA and private savings/investment plans and their interest rates. Money that is set aside in tax-deferred accounts like a traditional 401(k) or IRA will usually constitute a good portion of one’s post-retirement earnings. Ideally, if only these accounts’ interest earnings were used to continually fund one’s retirement, the money would outlast the retirement. Required Minimum Distribution calculators, such as the one provided on the Financial Industry Regulatory Authority s (FINRA) web site, report the amount of interest that a traditional 401(k) or IRA must earn in order to replenish its yearly distributed amount.

3. Find out about Social Security and Medicare benefits. Scientists can qualify for Social Security and Medicare benefits if they have a given number of work “units” as defined by the Social Security Administration (SSA). The SSA provides a useful Retirement Estimator on its web site for determining if one qualifies for these benefits, how much money to expect as a function of one’s age at retirement, and if one’s current or former spouse will influence benefit amount.

Given the amount of money that one has saved and/or invested, as well as the benefits that one is expecting to receive from the SSA, coverage of post-retirement living expenses may or may not be possible. If retirement savings and interest income do not cover living expenses, there are at least four options for the retiring scientist:

1. Work longer. One can defer retirement and choose to work for an additional number of years. In fact, ever since mandatory retirement from postsecondary institutions was lifted in 1994, many scientists have chosen to remain for an extended period of time in their careers (NSF, 2010). Working for a longer time allows one to save additional money, contribute more to a 401(k) or IRA, and avoid using up current retirement savings.

2. Look for post-retirement work. One can supplement missing retirement income by working part-time as a consultant, lecturer, researcher, etc. These positions not only help one earn extra money, they often provide a sense of purpose and accomplishment for the newly retired scientist.

3. Relocate assets. If working longer or for additional money is not possible, then one should consider reallocating current assets in order to generate additional income. For example, one might allocate a greater portion of one s savings towards high dividend stocks instead of low interest-bearing T-bonds. In extreme cases, it may be necessary to sell tangible assets such as a car or house and invest the money in growth stocks and/or bonds.

4. Learn to live on less. While not the most popular option, living frugally can make immediate retirement possible. Some strategies include moving to a low cost of living state (e.g., Oklahoma), living with one’s grown children or relatives, and trading one’s house for a smaller apartment. Many retirees move to countries that have warmer climates and a lower cost of living in order to save money.

References:

Economic News Release. Bureau of Labor Statistics. 2011. http://www.bls.gov/news.release/cpi.nr0.htm

FINRA Required Minimum Distribution Calculator. http://apps.finra.org/Calcs/1/RMD

Jupiter Scientific. Science Salaries by Discipline. 2005. http://www.jupiterscientific.org/sciinfo/sciencesalaries.html

About the Author: Stacy JonesResearch Assistant

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